How High Can Vertex Pharmaceuticals Fly?

Shares of Vertex Pharmaceuticals (NAS: VRTX) recently hit a 52-week high. Let's take a look at how it got there and see whether clear skies remain in the forecast.

How it got here
For a company that's been perpetually on the auction block, according to many investors (myself included), Vertex seems to be doing just fine on its own. Two key pipeline factors have Vertex soaring to the heavens in what has been a generally great year for biotechnology stocks.

First, Vertex offers the current best in class hepatitis C drug, Incivek. It resoundingly defeated its closest competition in Merck's (NYS: MRK) Victrelis; Incivek has been able to clean up. This isn't to say that Vertex is going to have free reign of the hepatitis C space because Gilead Sciences' (NYS: GILD) experiment hepatitis C drug, which does not need interferon, GS-7977 -- acquired when it purchased Pharmasset -- has completely removed the virus in 88% of patients in a remarkably short 12 weeks. Other smaller players exist as well, like Idenix Pharmaceuticals (NAS: IDIX) , whose experimental drug IDX-184 eliminated the virus in 100% of patients in a recent study but took twice as much time as GS-7977.


Secondly, Vertex's potential cystic fibrosis treatment Kalydeco is showing considerable promise in mid-stage study when combined with another experimental drug in its pipeline VX-809. With 70,000 people afflicted with the disease worldwide, about half of which contain a key mutation, Vertex has a shot at cornering what would become a very profitable treatment.

How it stacks up
Let's see how Vertex Pharmaceuticals stacks up next to its peers.

VRTX Chart

VRTX data by YCharts.

It's been a bumpy ride, but Vertex has really pulled away from its peers in the past few days on the Kalydeco news.

Company

Price/Book

Price/Cash Flow

Forward P/E

5-Year Revenue CAGR

Vertex Pharmaceuticals 16.3 88.8 21.0 45.5%
Gilead Sciences 5.2 12.1 11.5 22.6%
Idenix Pharmaceuticals 12.5 N/M N/M (36.5%)
Bristol-Myers Squibb (NYS: BMY) 3.4 11.8 17.2 3.5%

Sources: Morningstar, author's calculations. CAGR = compound annual growth rate.

I've often been told that subjecting biotech companies to standard financial metrics is a hopeless act, but humor me -- I find it amusing and thought-provoking.

Idenix doesn't have a marketable product yet, so its revenue steam relies solely on collaborative revenue -- thus the 36.4% annual decline over the past five years. Gilead and Bristol offer considerably more extensive pipelines than Vertex, which comes with both good and bad news. On the bright side, portfolio diversity shelters these two from becoming the victim of one or two stocks coming off patent. On the downside, growth for these two is often much slower than a company like Vertex that's off and running with its blockbuster Incivek. Suffice it to say that all three offer something to biotech investors with their individual pipelines.

What's next
Now for the real question: What's next for Vertex Pharmaceuticals? The answer is going to greatly depend on the success of Kalycedo as it marches through clinical trials and whether Incivek sales can hold up in light of the incredible success of Gilead's GS-7977, Idenix's IDX-184, and even Bristol-Myers' acquired hepatitis-C hopeful from Inhibitex, INX-189. Not to mention that GS-7977 and Bristol's daclatasvir paired up for a 91%-100% early cure rate.

Our very own CAPS community gives the company a three-star rating (out of five), with an overwhelming 91.4% of members expecting it to outperform. Although I have yet to officially lay down my opinion on Vertex in the form of a CAPScall, I'm still leaning toward the company outperforming over the long run.

Vertex will continue to remain on buyout watch for as long as I follow that company. It possesses a potentially revolutionary cystic fibrosis treatment that could capture the lion's share of the market if the drug is successful, and its hepatitis C drug Incivek is clearly the best choice available based on drugs currently approved by the FDA. Although no drug approval is a certainty, it does look like Gilead's GS-7977 is going to streamline itself right onto the FDA's lap sometime soon with the results it's been producing, and it's quite possible Vertex could be facing some strong competition within the next few years.

Until then, Vertex looks like a strong growth stock that is being hampered as a buyout candidate only by its recently inflated valuation. While I'm not ready to make a CAPScall of outperform on the stock as of yet, I will reconsider my position if a pullback ever resurfaces.

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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter services have recommended buying shares of Vertex Pharmaceuticals and Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Gumby

My point overall is that the herd mentaliity crowd is perfectly content to outwait you for as long as it takes to wear you down despite your awareness that it was foul play all along.. They dont care and they will outwait you! it is like getting inside your head that can drive you crazy!! If this is not insdier trading of a sort, I dont know what it is .. The SEC has to be made more aware of this... There is so much finaincial derpivation of so many unwitting investors wondering what the heck went wrong! We make mistakes , of course but it is way too overdone by the herd mentality crowd whoever they are.. They exist... They use databases or sources of information legal or illegal against your own kinds..

May 11 2012 at 3:52 PM Report abuse rate up rate down Reply
Gumby

America may already be using twice as much aluminium as are produced here.. The demand is already high that should justify higher aluminium prices but China put a real dampening on the prices..

May 11 2012 at 3:48 PM Report abuse rate up rate down Reply
Gumby

ALCOA is boasting about working with China's new jet development known as 919 but can China make any dent into Boeing or Airbus.. I dont know.. I see very littel reason to be excited about China's new passenger jet.. I dont really think that China will take over our passenger jet business at all. So my point is why keep selling critical aluminium components to the Boeing and Airbus companies at only $1 a pound. A passenger jet probably use no more than a millon worth of aluminium yet it fetch $100 millon each.. You cannot really hurt Boeing or Airbus by doubling aluminium prices as it should .. This is chump change but it will mean a great deal to ALCOA and its shareholders.. Aluminium prices should be at $2 , but we are still drowning in over supplies of aluminium all of them coming from China !! Our president will eventually have to sign law to stop aluminium dumpings like what happened to steel that President Bush signed in to law to stop dumpings., Why the delaying??/ Sign into law to stop flooding of aluminium !!

May 11 2012 at 3:47 PM Report abuse rate up rate down Reply
Gumby

Come to imagine if you are the CEO of First Solar , presumably with much ambition and enthusiasm to grow First Solar or even Sunpower. Come to think of this... then you watch natural gas prices plummets from $14 per mcf ro below $2 per mcf in a very short time.. Had natural gas not come down as far, First Solar would not have crashed at all. We will be still be interested in First Solar growth story with more confidence.. Natural gas at $2 is false simple as that.. But natural gas consumers are not complaining.. of course.. but not for long anyway.. they will end up paying far more anyway.. just becasue First Solar or Sunpower is crushed already. China lend tens of billons to its own solar companies yet their solar companies are not making money.. Are we giving marching orders to China to overproduce solar energy to help crush superior American solar products ?? Same thing can be said about China 's aluminium industry which already control close to half of world productiion. and they are not making money at all. Boeing, Coca Cola and General Electric couldnt be more delighted , right? Look at ALCOA a DJIA stock still stuck at $10 down from $45 at all high while DJIA rose to 13000.. ALCOA is not sharing in the DIA climb at all.. it is so dirty and clear to see that it is so..

May 11 2012 at 3:41 PM Report abuse rate up rate down Reply
Gumby

You may ask me why people bought First Solar at $100 or above in the first place.. I can only answer that people including myself expect First Solar to continue to expand production and installatin indefintely no matter where oil and natural gas prices is heading .. We all know that oil and gas prices will not stay low forever and that we must plan ahead . We know that we must diversify our energy portfolio across America because we cannot depend on oiil and gas producers forever as histroy clearly showed .. You have to realize that we are already paying an extra trillon dollars EVERY YEAR for fossil fuels combined than 10 years.. This is a huge trillon dollar hole in our economy's pocket every year.. I thought that it would be a no brainer to start investing in solar stocks to help stablize fossil fuel prices that is on a upward trajectory no matter what.. It is supply and demand and we can collectively control fossil fuel prices better with better preparation by utilzing reasonably more solar energy that will require no more than one hundred billon dollar in investments every year that can save us a trillon dollar extra going toward fossil fuel every year more or less maybe $300 billon at least. This is smart strategy.. Oil investors are having none of that as they want them all. They suddenly rush out to Canada and North Dakota and other states where there is shale rock or oil sands that already cost much more than solar energy .. The oil investors are quietly projecting $200 oil barrels or more by the end of this decade... They know that if we keep investing more in solar stocks, they will not realize $200 oil barrels if ever or much later.. They just wiped out First Solar or Sunpower shareholders in hopes to teach them lessons .. What kind of lessons?? Is it a good captialistic lesson or a plain bully lesson like getting yourselves wedged up??? It was a plain money grab like any bully would to a wimpy kid.. They dont care about global climate issues at all. The herd mentality crowd are good at making promising small stocks appears way too risky to own than they are actually. I am talking about bully risks.. The SEC needs to develop very effective rules to prevent this from happening.. if First Solar achieved $100 a share , why should it crash while ti is still operating pretty much the same as yesterday. minus the circumstances like falling natural gas or things liek that.. This is numbskulling!! They are trying to destroy solar stocks , simple as that.. to clear the way for higher oil prices that you dont want !

May 11 2012 at 3:34 PM Report abuse rate up rate down Reply
Gumby

It is rather interesting to watch Vertex stock price still sticking in the 60's for a week so far.. Usually for small stocks like Vertex, it would have fallen to 50's by now. It probably will or not. Meanwhile, before you jump in,, you have to decide whether it is your money the herd mentality crowd is after or that even better news is coming up anytime.. If no better news comes up in any due time, Vertex stock will fall again because it is a small stock. What really matters is that the herd mentality is using your fresh captial at this much higher Vertex price of around 60's which you may not expect to see another return to same levels for a really long spell. They sprinkled potion upon your mental greed and con you out of your money and time!! They are borrowing your money interest free while you sit and pout for months if not years befroe you finally get back your money in whole.. Sometimes the herd mentality is not safisified and choose to wipe you all out 100% simply because Hep C patients are warehoused ... I doubt so but it happens to so many promising small stocks like First Solar,, Look at that... now at $16 down from $100 or higher.. for what reason .?? nothing much but just that natural gas prices fell thanks to Big Oil subsidizing natural gas prices with higher oil prices you pay at the pump simple as that.. Maybe we ought to break up Big OIl into oil and natural gas stocks.. Big OIl is already a monopoly on both oil and natural gas .. Look at independent natural gas proudcers like Chesapeake getting wiped out already from depressed natural gas.. There is antoher stock tha is still being choked to death like ALCOA!!! Why inthe world is aluminium still fetchin g only $1 a pound ??? We are already paying can recylers $2.10 apound and turn around to sell the new can sheets to Coca Cola and Pepsi for $1 a pound.. What is wrong with this math ??? Nobody cares .... This is nonsense!! Aluminium is supposed to fetch $2 a pound right out the smelter or recycling yard no matter which.. its all perception and most of you dont care.. or understand what matters. at all... You can laugh all you want but I dont care about you.

May 11 2012 at 3:19 PM Report abuse rate up rate down Reply
Gumby

Lets suppose that Gilead or insurance companies are telling doctors to warehouse patients... is it anti-trust matter that should be looked at by the SEC ?? Doctors are powerless as insurance companies are the one who pays for Hep C treatments.. Hep C patinets may be unwittingly unaware about the reason their doctors tell them to wait.. Is the herd mentality crowd behind this so that they can own Gilead instead of Vertex?? Gilead is much bigger than Vertex.. I find it very strange that Gilead bought Pharmassat 's Hep C before it is even approved for $11 bilon. it is chump change even if Gilead didnt get approval in 2015 as the herd mentlaity crowd can always buy Vertex before you know what is going on.. I expect Vertex to ramp up very quickly but the big $64,000 question is how many patients will be warehoused for whatever reason legal or not. It can be a very dirty business out there..The SEC can not watch everything.. It is up to you to fight the herd mentlaity crowd and more importantly to prove it.

May 11 2012 at 2:47 PM Report abuse rate up rate down Reply
Gumby

I would not want to sell Vertex to the Big Pharma at all. Big Pharma swallowed too many good biotechs .. Why biotechs dont horizontally merge at all, I dont understand!!! I would prefer that over roling over dead and sell out to Big Pharma as Wall street herd mentality crowd apparently favors becasue they are easily envious of such hot stocks like Vertex and they want them out of the sight along with similar hot biottechs that can merge and steal flow of capital away from Big Pharma stocks.. They are finaincal bullies!@

May 11 2012 at 2:34 PM Report abuse rate up rate down Reply
Gumby

If any of you are so unsure, I would recommend that you buy only 10 or 25 shares of Vertex for the long run. Options is not a very good idea to use for Vertex even LEAPs.. I would postpone LEAPS until 2015 or 2016 depending on the movement of Vertex stock price. Accumulate Vertex by 10 shares on the 30% dips or more. There is different trading patterns that best tailor your risk profile. The bottom line is that Vertex will stick around for next 20 years.. It s stock price will not be treated kindly by the herd mentality crowd.!! It will be easily ignored!!

May 11 2012 at 2:31 PM Report abuse rate up rate down Reply
Gumby

The problem is how to pull them to buy Vertex stock as any idiot knows that Vertex is growing rapidly .. Ask me how?? Call the SEC, maybe?? What are the rules?? None, I suppose.. Nobody can force nobody to buy stocks even if they grow fast. There is no such rules that forces the herd mentality crowd to do so. The herd mentality crowd prefer to invest in stocks that sell toothpaste, tobacco, oil, gold, car insurance, those steady ones.. big ships.. The herd mentality crowd is not overly concerned with the overvaluations of such stocks they hold because so many people hold them in herd mentality.. Even if there is panic, those stocks will go down no worse than 20% or so while smaller stocks go down 80-90% easily.. Vertex is a likely wipe out candidate when panic hits. for any kind of reason. It is about 70-=30% odds against you if you buy Vertex now .Vertex can keep climibing to 80 or 90 but not more. So there is notmuch headroom this time as there is a huge cellar below .. Vertex is more likely to come back down to 30 in a feather like descent than to resume climb toward 90 which is the definite top for next two years . Vertex price today is refecting this year revenues. Next year will depend on the doctors' warehousing policies.. It all depends onthe patients willing to take Vertex drug right away or wait unitl newer drugs come along in 2015.. My advice is to stay away from Vertex until news change like new prohibitoin of warehousing patients. or the newer drugs stil in clinical trials suffer setbacks that shows that interfernon is still needed . I am still skeptical of interfernon free drugs still on clinical trials.. Interfernon is a powerful drug that probably ensures that it is all cured than any drug without interfernon.. So I dont really know.

May 11 2012 at 2:26 PM Report abuse rate up rate down Reply